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Consider the following call option: the current price of the stock on which the call option is written is $ 18; the exercise or strike price of the call option is $ 16; the maturity of the option is 90 days or 0.25 year; the (annualized) variance in the returns of the stock is 0.13 and the risk-free rate of interest is 4.1% per annum.
a. What is the value of this call option?
b. Value the call option where the exercise price is $23
c. Value the call option under the original assumptions stated above but with an annualized variance in stock returns of 0.30 Why did the value of the call option increase when compared to part a?
ROUND TO NEAREST CENT
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